No Win No Fee for Commercial Claims

by Patricia Hall

The concept of No Win No Fee has been with us since 1995.  Conditional Fee Arrangements, as No Win No Fee is properly known, CFAs for short, were introduced for personal injury claims in 1995, and extended to other areas in 1998.

Notwithstanding this, CFAs are rarely used even now outside personal injury claims.  This article examines why, and looks at how CFAs could be used more often in commercial claims.

One reason for the high uptake in personal injury claims is that legal aid was withdrawn for most for injury claims in 1999 so that CFAs are the main method of financing such claims for most  individuals.

As it happens legal aid has also been unavailable for claims arising out of a business since 1999, but one would not expect commercial enterprises – certainly successful ones – to be litigating with the assistance of legal aid in any event.

The fact that businesses are often more able to finance litigation than private individuals also contributes to the rarity of CFAs in the commercial arena.

Solicitors are not natural risk takers.  If we don’t have to take risks, we will often opt not to do so.  Understandably, we tend to prefer the traditional solicitor/client relationship, where the client, not us, assumes all the litigation risk.

Luckily for commercial clients, there are plenty of forward-thinking solicitors who are aware that businesses may be attracted by the advantages of litigating with the benefit of a CFA, even if they can afford to litigate the traditional way.

That is not to say that every case is suitable for a CFA, or that any case can be taken on a CFA from the outset. Before a solicitor can accept the role of underwriting litigation risk they must first assess the chances of success carefully and there is nearly always a charge for the assessment process. This is at odds with what happens in the insurance market, where a proposal is usually vetted free of charge.  However, while CFAs are in some ways analogous to contracts of insurance (because they redistribute risk), they are in reality very different because insurance premiums are paid in advance if the risk is accepted; whereas for CFAs the payment comes in only after the event, and then only in respect of those cases that are won.

Therefore, the process of vetting must be particularly thorough. It is not realistic to treat the cost of the assessment process as merely an incidental overhead of offering to take some cases on CFAs, because of the potentially open ended nature of a commitment to assess all and any cases free of charge.  The rewards for successful CFAs are not sufficiently buoyant to absorb the cost of such a commitment. 

The uplift on successful CFAs already has to absorb the cost of time spent on unsuccessful CFAs, and it is worth bearing in mind that unsuccessful cases will often have reached trial, while the successful ones settle early, meaning that more time is spent unpaid on losing cases than is chargeable in successful cases.  For this reason, most solicitors will not accept cases on CFAs unless they have at least a 75% chance of success.

While these restrictions on the availability of CFAs may be disappointing, clients ought not to be too despondent as

a) solicitors should be able to give a reasonably accurate estimate of the costs of the investigation process, so that these costs can be properly budgeted for; and

b) clients should, in any event, be discouraged from litigating where they have a less than 75% chance of success, so any case that is worth litigating should in theory be capable of being covered by a CFA, if the case is otherwise suitable.

There are certain factors that make some cases more suitable for CFAs than others.  Most important is that there should be an identifiable fund out of which the costs can be paid in the event of success.  Thus, clients will not thank a solicitor for litigating on a CFA against a Defendant of uncertain means because success against such a Defendant will trigger the client’s liability for the solicitor’s charges, including a success fee, and the client will still have to pay those charges even if, at the end of the day, they cannot be recovered from the Defendant; in that situation the client would be better off litigating on the traditional basis, so that at least no success uplift will be applied. 

CFAs may be considered if, for example, the dispute concerns a property or other asset out of which the costs of a successful claim can be met, but the ideal situation for a CFA is where the opponent is insured.  It is no accident that more than half the cases where Burnetts have offered CFAs in non-personal injury claims are professional negligence claims where the Defendant’s professional indemnity insurance will guarantee that the costs of a successful claim are paid. 

There is no reason why CFAs should not work well in a commercial arena where, after a thorough assessment process, there looks to be a good chance of success and the opponent has some means of paying costs.

Patricia Hall is a Partner in Burnetts’ Dispute Resolution department. For further information on commercial CFAs, contact Patricia on 01228 552222.